All Forum Posts by: Arlen Chou

@Garmeon Y. seller financing does happen here in the BA, you just have to find the right deals.  I got seller financing at 4% for a 4 year period back in 2015.  This was in Oakland.  The BA can be extremely profitable, but you have to be extremely careful about your finances.  A personal line of credit should be a back up to your back up reserve of money, not your first weapon of choice... just my 2 cents.  Your financial situation will shine a light on the price range and the type of properties you should be look at.  From that point, you will know the cities and the sub markets within those cities you should be looking at.  Don't let yourself be that guy in a gun fight who used all of his bullets at the start of the battle and now has an unloaded weapon.  That is how to many people got crushed after the last bubble burst.

@Wes Blackwell as you know I am interested in the Sacramento area, but for reasons that are not really relevant to this topic.  @Amit M. as you know I am deep into the buy and hold strategy in the Bay Area.  Both areas have interesting opportunities, but they are geared for different types of investors.  I fully believe that there is money to be made in both markets.  But I think it is incorrect to base a decision on the idea of "tech" workers migrating of of the BA and the Bay Area only being a 1 industry town.

There was a string of posts on this topic last year, but I feel it is important to educate our fellow BP'ers that the term "tech workers" is not a single class of employees but a very WIDE catch all phrase that encompasses everything from bio-tech to chip design to aerospace etc, etc, etc.  These very different industries do not move in lock step, nor are they effected by the same macroeconomic factors.  As an example a software "tech engineer" can write code for Google, Amazon, Tesla, Salesforce.com, airBnB, Uber or any other countless companies.  The point being that the primary industry for each one of my examples is completely different but the "tech" skill set of the software engineer is applicable in all industries.  The easy fall back is to say; "sure that is for a software engineer".  However, it applies to hardware, electrical, design and a plethora of other "tech engineering" careers.

The real point is that the "high tech" of today will be the "low tech" of tomorrow.  As that "high technology business slowly slides into "low tech" side of the scale, corporations will look for ways to minimize costs because they will no longer be the "it" company and pulling the giant PE ratios.  This will drive jobs out of the core BA.  But it would be a mistake to believe that NEW "high tech" won't fill the voids and along with those new technologies will be a new army of "tech engineers".

My point is that jobs will move to Sacramento but jobs will also be created in the BA.  So I guess my point is that both of you guys are right for different reasons ;-) kumbaya

@Tim Jones There are so many people on BP and in the REI community that are looking for the "best deal" or the "killer deal" or for a "home run", that they miss out on so many opportunities.

In my own investment philosophy I basically apply a REI twist to a famous quote by Karl Von Clausewitz: "The enemy of a good plan is the dream of a perfect plan". In my view of real estate investing, the enemy of a good deal is the dream of a killer deal. As we become more sophisticated and knowledgeable, we are able to refine our plans and strategies; getting us closer to more "killer deals".

Whatever you decide to do should not be based upon what a myriad or faceless BP'ers have done or said.  Know yourself, know your market, put together a plan based upon the knowledge you have and make your move or don't...  Don't worry if your deal does not stack up against others, or people think you "could have, would have, should have".  As long as you are making money and moving ahead, you will be ahead of 99% of the pack!

As a final take away: "Doubt kills more dreams than failure ever will" -Suzy Kassam

@Tim Jones the fear of investing exists at every point in the cycle, they are just different types of fear.  You just have to decide if you are capable of dealing with those fears and the worst case scenario in each part of the cycle.  I am personally a "generational investor" looking past the remainder of my life, so stabilization and appreciation are large parts of my strategy.  So I use the same strategy in acquisition of stocks, called "dollar cost averaging".  I don't believe that I ability to predict peaks and troughs in the market.  Frankly I am just not that smart!  I look for good products that I want to hold for a very long time and evaluate each for its intrinsic value.  If my evaluations are correct for each deal, I will have some deals that will turn into home runs, but others that will be singles or doubles. But as a total portfolio I should come out ahead.  There are deals still out there, they just have to be dug up.  You have taken the first critical steps of getting your finances inline.  That is the most important action you could have taken.  Now you are in a position to jump if you find a true deal.  I personally do not let macroeconomics out shadow my microeconomics analysis of a deal. Don't get me wrong, macroeconomics is very important, but the fact that we are near or at peak of the market does not stop me from looking or moving.

Regarding your question about off loading your primary residence, I don't know your market so it would be foolish of me to make any type of comment on a strategy for you. However, I can tell you that for my primary residence I pulled a first position HELOC and used those funds to buy a 6 plex in Oakland last year. My new rate is prime minus 1%! The property I purchased covers all of the costs for it AND my primary residence. Take it for a grain of salt, but Zillow is showing that my house has tripled in "potential" value since I bought it 14 years ago. Last year people were saying the same thing about being near or at the peak of the market, but I made the move because the deal made sense.

There are many who would say what it is crazy to put my primary under a HELOC to buy a rental. There are others who think it was brilliant to leverage my primary home to generate cash flow. At the end of the day, I made the move because I was comfortable with my macro and micro economic analysis along with my analysis of the deal itself and my overall cash flow.

I guess the point to my ramblings is that don't let the "sky is falling" herd mentality keep you hiding inside.  Get out there and look for the deals, and when you find it analyze the crap out of it and then make your decision.

Good hunting to you

-Arlen

@Luiz Souza I have 2 kids, a daughter who will turn 15 next month and a son who just turned 13 back in November.  I am a buy and hold investor who does his own renovations, along with working a W2 job.  In 2013 I started the kids off with helping me with demolition and paint.  You have to make it fun, so I gave them baseball bats and hammers and told them to go to town on the kitchen cabinets!  In 2014 I moved them up to power tools like compound miter saws and tile saws. Additionally, I do all of the document signing at home so the kids can see the people come through and I let them know who those people were and why they were there.  

When I am hunting for new properties, I discuss the types of properties and the general neighborhoods over dinner.  

I run profit/loss and cash flow statements for each of my properties.  I just started to expose them to the "red and black" numbers.  I keep everything very casual, as I don't want to force the education.  I think a "learning through osmosis" process is better at these younger ages.

My kids have been paid with full stomachs and a roof over their heads.  Call me old school but I expect them to help the family without me handing them money.  However, in terms of monetary payments, I have been setting aside any and all money they get for birthdays and holidays in addition to adding what I believe is a fair days wages for any work they have done for me.  They were not aware of the amount of money that has been saved for them until this year.  After 15 years of straight savings, my daughter has a high 5 digit savings account.  A crazy statistic that I threw at my kids is that the average amount of money in an Americans savings account is less than $5000!

My next step will be to help my freshman daughter use her funds to purchase "her own deal".  Obviously there are legal and financial hurdles she could not overcome as a jobless minor.  But we will go through the property selection and negotiations together and use her money as the basis for the down payment.  I plan to have her work directly with contractors and property managers and also managing the finances of the property.  Of course I will be in the shadows verifying and approving everything.

By the time she is a senior in high school I would like her to find and negotiate her own deal.  Again, as a minor without a job the finances will have to all be underwritten by me, but the point is for her to learn.

During the spring of her freshman year in college, I would like her to find a deal close to her university so she can move out of the dorms her sophomore year.  With that property, I would like to see her get "roommates/tenants" and experience property management directly.

Once she is done with college it will be up to her what she wants to do with her portfolio and her career path.  I also plan to do all of this for my son.

I hope this helps.

-Arlen

@Rachel Finch I am curious to know why you bring up Fremont in the Bay Area when there are so many other cities in the area.  I currently invest in Mountain View and Oakland and I am wondering what catches your eye about this particular city.

Thanks,

Arlen

@Sean Phillips its not clear from your post if this is the entire condo complex or just 3 units in a larger complex.  If you are looking at buying the entire complex, then it will be very difficult for you to get a loan.  Typically banks don't like to see a single owner own more then 50% of a complex.

@Hilary Hageman don't get caught up in the cash flow vs appreciation debate.  You should always be looking for BOTH.  Settling for only one or the other is like settling for just half a pay check...  As a real estate investor you have the opportunity to get both, so why not go after both?  Granted each market will have different weighting to both cash flow and appreciation, but the deals you should be looking for should give you both.  If it does not, you are settling... and you are not being efficient with your funds or time.  

@Sarah D., what I do is buy my own paint and tools, then head over to the Day Labor Center and ask for people with painting experience.  These are usually the same guys who are working on painting crews for the professional paint companies...  You tell them exactly how many hours you need for that day and the type of work and the pay for that work.  Everything is set up there at the DLC, so there is no confusion at the end of the day and there is a record at the center.  I will usually paint along side the guy for part of the day to see if he knows what he is doing.  If he is good, I will ask him to come back the next day.  If he is not that great, I ask the center for a different person. This is usually an all cash transaction, so you won't get any receipts.  I have found that the work is just as good as the professional painting crews.  ALL of the guys that I have hired through day labor centers have been extremely hard working, polite and professional and usually tip and provide lunch.  YMMV

I am not going into the legal, safety or political points of hiring these guys and using them.  I am just pointing out another option for you that has worked well for me.

Good luck to you!

-Arlen

@Adam London 

If you are really worried about it, I would have your subs quote you with them pulling the permits. If they are reputable and know the city guys, they will be able to blow through the system very quickly and you won't have to worry about any issues. 

But if you are looking to save some money and pull the permit on your own, as the owner, more power to you. That is what I do on my projects and it has worked for me.

The permitting process is not all that scary for what you are doing.  You can go online and down load the permit form so that you are all ready and so you will know how much your fees will be. Follow the advice you have been given by the others guys:  Take drawings, take pictures of what is there so you can show them what you want to do.  The inspections after the work is complete is not that big of a deal.  The guys are really good to work with and they know what they are doing.  If you can show them clearly what you did and look like you know what you are talking about the process is very smooth. 

Besides, the advice you have been given the only thing I would add is get to the permitting office early.  The wait can be HOURS long... but I have been lucky in the past and been in and out in less than 1 hour.  

Good luck to you!

-Arlen